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Why Is Bank of America (BAC) Up 8.5% Since Last Earnings Report?
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A month has gone by since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Bank of America's Q3 Earnings Beat on Solid Trading, IB & NII
Bank of America’s third-quarter 2023 earnings of 90 cents per share handily outpaced the Zacks Consensus Estimate of 80 cents. The bottom line compared favorably with 81 cents earned in the prior-year quarter.
Driven by modest loan growth (loan balances up 2% from the prior-year period) and rising interest rates, BofA recorded a better-than-expected growth in net interest income. On the other hand, the rise in funding costs weighed on NII to some extent as the company’s interest expenses jumped significantly.
Like the second quarter of 2023, BofA bucked the trend plaguing other Wall Street biggies like JPMorgan and Citigroup and came out with impressive investment banking and trading numbers this time too.
Total IB fees (in the Global Banking division) of $743 million grew 2% year over year in the quarter on the back of relatively stable advisory fees and robust equity underwriting performance, which surged 64%. On the other hand, weakness in fixed income underwiring (down 7%) remained.
Sales and trading revenues (excluding net DVA) were up 8% from the prior-year quarter to $4.4 billion. Fixed-income trading fees rose 6% and equity trading income jumped 10%.
During the quarter, BofA witnessed a 3% decline in deposit balances as customers continued to rotate toward high-yielding investment options.
Overall, the company’s net income applicable to common shareholders grew 11% from the prior-year quarter to $7.3 billion. Our estimate for the same was $6.3 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $25.17 billion, which beat the Zacks Consensus Estimate of $25.08 billion. The top line grew 3% from the prior-year quarter.
NII (fully taxable-equivalent basis) rose 5% to $14.53 billion, driven by higher interest rates and loan growth. Our estimate for NII was $14.26 billion.
Net interest yield expanded 5 basis points (bps) to 2.11%. We had expected the metric to be 2.08%.
Non-interest income increased marginally to $10.79 billion. The rise was mainly attributable to higher sales and trading revenues and asset management fees, partly offset by a decline in other income. We had projected non-interest income of $10.43 billion.
Non-interest expenses were $15.83 billion, up 4%. The rise was due to an increase in almost all cost components. Our estimate for non-interest expenses was $15.81 billion.
The efficiency ratio was 62.93%, down from 62.45% in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsening
Provision for credit losses was $1.23 billion, up 37% from the prior-year quarter. Our estimate for the metric was $1.24 billion.
Net charge-offs (NCOs) jumped 79% to $931 million. We had projected NCOs of $849 million.
As of Sep 30, 2023, non-performing loans and leases as a percentage of total loans were 0.46%, up 7 bps year over year.
Capital Position Strong
Book value per share as of Sep 30, 2023, was $32.65 compared with $29.96 a year ago. Tangible book value per share as of the third-quarter end was $23.79, up from $21.21.
At the end of September 2023, the common equity tier 1 capital ratio (advanced approach) was 13.5%, up from 12.6% as of Sep 30, 2022.
Capital Distribution Update
During the reported quarter, the company returned $2.9 billion to shareholders in dividends and share repurchases.
Outlook
The company expects fourth-quarter 2023 NII (FTE) to be around $14 billion. Thus, for 2023, NII is expected to witness growth of 9% year over year (changed from the previous guidance of 8% growth).
During the first half of 2024, NII (FTE) is expected to hover around $14 billion. In the second half of the year, NII is expected to witness modest growth. By the fourth quarter of 2024, NII is expected to be up low-single-digits compared to the fourth quarter of 2023.
The company expects fourth-quarter expenses to benefit from head count reduction.
Expenses are expected to decline in the fourth quarter of 2023, excluding any FDIC special assessment costs. In the fourth quarter, the company expects to record $15.6 billion in total expenses.
Management expects tax rate (excluding discrete and special items) to be 9-10% for full-year 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Bank of America has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Bank of America is part of the Zacks Banks - Major Regional industry. Over the past month, Citigroup (C - Free Report) , a stock from the same industry, has gained 10.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Citigroup reported revenues of $20.14 billion in the last reported quarter, representing a year-over-year change of +8.8%. EPS of $1.52 for the same period compares with $1.50 a year ago.
For the current quarter, Citigroup is expected to post earnings of $1.18 per share, indicating a change of +7.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.1% over the last 30 days.
Citigroup has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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Why Is Bank of America (BAC) Up 8.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Bank of America (BAC - Free Report) . Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Bank of America due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Bank of America's Q3 Earnings Beat on Solid Trading, IB & NII
Bank of America’s third-quarter 2023 earnings of 90 cents per share handily outpaced the Zacks Consensus Estimate of 80 cents. The bottom line compared favorably with 81 cents earned in the prior-year quarter.
Driven by modest loan growth (loan balances up 2% from the prior-year period) and rising interest rates, BofA recorded a better-than-expected growth in net interest income. On the other hand, the rise in funding costs weighed on NII to some extent as the company’s interest expenses jumped significantly.
Like the second quarter of 2023, BofA bucked the trend plaguing other Wall Street biggies like JPMorgan and Citigroup and came out with impressive investment banking and trading numbers this time too.
Total IB fees (in the Global Banking division) of $743 million grew 2% year over year in the quarter on the back of relatively stable advisory fees and robust equity underwriting performance, which surged 64%. On the other hand, weakness in fixed income underwiring (down 7%) remained.
Sales and trading revenues (excluding net DVA) were up 8% from the prior-year quarter to $4.4 billion. Fixed-income trading fees rose 6% and equity trading income jumped 10%.
During the quarter, BofA witnessed a 3% decline in deposit balances as customers continued to rotate toward high-yielding investment options.
Overall, the company’s net income applicable to common shareholders grew 11% from the prior-year quarter to $7.3 billion. Our estimate for the same was $6.3 billion.
Revenues Improve, Expenses Rise
Quarterly net revenues were $25.17 billion, which beat the Zacks Consensus Estimate of $25.08 billion. The top line grew 3% from the prior-year quarter.
NII (fully taxable-equivalent basis) rose 5% to $14.53 billion, driven by higher interest rates and loan growth. Our estimate for NII was $14.26 billion.
Net interest yield expanded 5 basis points (bps) to 2.11%. We had expected the metric to be 2.08%.
Non-interest income increased marginally to $10.79 billion. The rise was mainly attributable to higher sales and trading revenues and asset management fees, partly offset by a decline in other income. We had projected non-interest income of $10.43 billion.
Non-interest expenses were $15.83 billion, up 4%. The rise was due to an increase in almost all cost components. Our estimate for non-interest expenses was $15.81 billion.
The efficiency ratio was 62.93%, down from 62.45% in the year-ago quarter. An increase in the efficiency ratio indicates a deterioration in profitability.
Credit Quality Worsening
Provision for credit losses was $1.23 billion, up 37% from the prior-year quarter. Our estimate for the metric was $1.24 billion.
Net charge-offs (NCOs) jumped 79% to $931 million. We had projected NCOs of $849 million.
As of Sep 30, 2023, non-performing loans and leases as a percentage of total loans were 0.46%, up 7 bps year over year.
Capital Position Strong
Book value per share as of Sep 30, 2023, was $32.65 compared with $29.96 a year ago. Tangible book value per share as of the third-quarter end was $23.79, up from $21.21.
At the end of September 2023, the common equity tier 1 capital ratio (advanced approach) was 13.5%, up from 12.6% as of Sep 30, 2022.
Capital Distribution Update
During the reported quarter, the company returned $2.9 billion to shareholders in dividends and share repurchases.
Outlook
The company expects fourth-quarter 2023 NII (FTE) to be around $14 billion. Thus, for 2023, NII is expected to witness growth of 9% year over year (changed from the previous guidance of 8% growth).
During the first half of 2024, NII (FTE) is expected to hover around $14 billion. In the second half of the year, NII is expected to witness modest growth. By the fourth quarter of 2024, NII is expected to be up low-single-digits compared to the fourth quarter of 2023.
The company expects fourth-quarter expenses to benefit from head count reduction.
Expenses are expected to decline in the fourth quarter of 2023, excluding any FDIC special assessment costs. In the fourth quarter, the company expects to record $15.6 billion in total expenses.
Management expects tax rate (excluding discrete and special items) to be 9-10% for full-year 2023.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Bank of America has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Bank of America has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Bank of America is part of the Zacks Banks - Major Regional industry. Over the past month, Citigroup (C - Free Report) , a stock from the same industry, has gained 10.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Citigroup reported revenues of $20.14 billion in the last reported quarter, representing a year-over-year change of +8.8%. EPS of $1.52 for the same period compares with $1.50 a year ago.
For the current quarter, Citigroup is expected to post earnings of $1.18 per share, indicating a change of +7.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.1% over the last 30 days.
Citigroup has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.